The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) cancelled the penalty levied on the assessee under Section 271(1)(c) of the Income Tax Act, 196. The ITAT found that the assessee made a bonafide error in claiming the deduction on building construction expenses and there is no actual impact on the taxable income.
Assessee, Shree Gunatit Jyot Mahila Trust, a registered charitable trust under the Bombay Public Trust Act and section 12A of the Income Tax Act, filed its income tax return for the assessment year 2016-17 declaring ‘Nil’ income.
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The assessing officer found that the assessee received a corpus donation of Rs. 2,71,12,111/- for constructing the building and utilized 2,71,12,111 for constructing the building. The assessee claimed income tax exemption for the corpus donation under Section 11(1)(d) of the Income Tax Act and also claimed deduction for building construction under Section 11(1) of the Act.
The AO rejected the building construction claim stating the expense incurred out of corpus donation and initiated a penalty proceeding for wrong claim deduction under Section 11(1)(d) of the Act. Aggrieved by this penalty order, the assessee appealed before the CIT(A), and the appeal was dismissed by upholding the AO order.
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The assessee appealed the CIT(A) order before the ITAT, Ahmedabad. The assessee’s counsel represented by S.N. Soparkar admitted the mistake made by the assessee that the incorrect claim for building construction was a bona fide mistake and had no effect on the assessee’s total income.
The assessee’s counsel submitted that there was no variation in the total income as shown by the assessee and as computed by the AO in the assessment order. The counsel relied on the Gujarat High Court case of CIT vs. Oshwal Education Trust, [2014] where it is mentioned that no penalty can be levied due to a bona fide mistake of the assessee, which does not affect the income of the assessee.
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The CIT(A) counsel represented by Mamta Singh relied on the orders of the lower authority. The Tribunal heard both sides’ arguments and noted that despite the wrong claim, the overall deduction allowed was still within the permissible limit of the ‘income before application of income’. Thus, the claim had no impact on the taxable income for the current or future years.
The tribunal noted that the AO erred in imposing the penalty under Section 271(1)(c) of the Act and the assessee made a bonafide mistake, which has no impact on the taxable income.
The assessee’s appeal was allowed.
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